Too much of a good thing?

President Hollande of France wants to streamline local government.   (FT Tuesday, p4)  France has 13% of the population of the EU’s twenty-eight states, but it has one-third of EU local authorities.  There are 36,700 municipalities, 2,500 intercommunal groupings, 100 prefectures and 200 subprefectures.   The French refer to this as a “millefeuille” in light of these delectable , rich, buttery bureaucratic layers. 

According to Plato, reality resides in the forms.

It turns out that the accounting error at the Bank of America that derailed its dividend plans was really an error at the Federal Reserve.  The Fed provides forms to banks to calculate their regulatory capital.  The forms gave incorrect instructions, which BAC followed.  When the Fed noticed its mistake and corrected its instructions, a new, lower capital level resulted when the new instructions were followed. . . . Something similar just happened to me.  I just turned 65 and received a letter from Medicare explaining how to enroll on their website.  These instructions were incorrect because, it appears, the web site had been changed but the instruction letter had not.  (Probably a different department for the letter from that for the website.)  It goes without saying that BAC had to take the blame for fear of regulator retaliation.  (Faceless bureaucracies abhor red faces.)  The interaction between big government and big business produces big errors.  The interaction of big government and the individual is just inefficient and annoying.

 

Wake up and smell the data

The FT argues that “the dollar's decline in status is greatly exaggerated:  "Emerging central banks, led by China, have piled into US assets.  A far higher proportion of US government debt is held by foreigners than is true of Eurozone or Japanese government debt.  So international trust in the US continues to be deep."  (John Authers, FT Weekend, p16) This belies that fact that China now has only 31% of its reserves in dollars compared to over 70% a few years ago and that dollars are now a minority of reserves globally (assuming one doesn’t count the Fed’s massive holdings of dollars.)  The FT should wake up and smell the data.  The US dollar has already, alas, lost its dominance.

Global central bank gluttony?

Is it behind the treasury rally?   RBS estimates that global demand for high quality bonds is $1.2 tn while "net" supply is only $600 bn.  Meanwhile, U.S. banks increased treasury holdings by 23% in the first quarter. So there’s lots of cash and a “net” shortage of bonds.  The word “net” is key, since the too meager supply is net of the 60%+ of all securities being issued in the world that are being purchased by central banks.  (FT Weekend, p 12)

They want to take you higher.

The U.K. is thinking of raising rates to avert inflation, whilst the ECB is planning to lower the deposit rate to a minus number to fight deflation at the same time.  Why is it that England, with much higher interest rates than Germany and an equally tight fiscal policy, is having more inflation while Germany is having less inflation?  (FT Weekend, p1)

Is an irreplaceable symbol of Chicago’s heritage at risk?

Walgreens, based in Illinois, owns 45% of Boots, the UK pharmacy.  It is considering exercising its option to acquire the balance.  That would allow it to move its official headquarters to the UK, where it would benefit from lower worldwide taxes.  Walgreens grew to a national chain during Prohibition, with sales driven by the high-quality "medicinal" whiskey it stocked under-the-counter to supply "alcoholics" holding prescriptions, which were as freely-available then as prescriptions for “medicinal” marijuana are in Massachusetts today.  Can there be a prouder symbol of Chicago’s past?

The Inscrutable East: Up? Down? Sideways?

The official Chinese manufacturing index rose from 50.4 in April to 50.8 in May.  To stimulate the economy, bank reserve requirements have been reduced.  Meanwhile, housing prices dropped from April to May, or so they say. China is still targeting 7.5% growth in 2014. Can they make it happen?  Doesn’t the market expect/fear worse? (FT Mon p4)